Stefan Kaba-Ferreiro, head of trading at GHCO, has revealed the ETF market maker is set to enter the cryptocurrency ETP space next month in a further sign the asset class is becoming an increasingly viable investment solution.
Speaking to ETF Stream, Kaba-Ferreiro said the better custody combined with the rapid increase in institutional investor uptake meant the landscape was evolving out of the “wild west” state it was in during the 2017 run.
GHCO is set to begin market making crypto exchange-traded products (ETPs) for SEBA, the Swiss bank, in February but Kaba-Ferreiro said the firm was in discussions with a number of market participants.
The firm’s trading head said pricing cryptocurrency ETPs is “a market maker’s dream” due to the extreme volatility levels and improving custody.
“As a market maker, it is a great market to be in due to the arbitrage involved,” Kaba-Ferreiro continued. “Previously, liquidity providers could make $200 spread on a single bitcoin trade compared to mere basis points in the ETF ecosystem but this has since come down due to increasing liquidity in the market.
“Once there are more liquidity providers in the crypto arena, the market will become more competitive.”
Where the key challenge for market makers such as GHCO is in the speed at which the crypto market moves.
The price of bitcoin, for example, can move thousands of dollars in a matter of moments so being fast and connected to as many liquidity venues as possible is critical, according to Kaba-Ferreiro.
“Speed is something we are focused on as a firm,” he stressed. “We have partnered with Redline Solutions, an ultra-low latency solutions provider.
“Unlike traditional markets, there are many different exchanges. For example, if someone executes a big order in South Korea and we are not plugged into that exchange then this can lead to information asymmetry.
“For us at GHCO, it is about building the foundations now so if this space blows up we are in a good spot in terms of having the connectivity and being linked up into the exchanges of tomorrow.”
Where Kaba-Ferreiro would like to see more development is in regulation. In Europe, there is a divergence between the big regulators on their views of cryptocurrencies.
Highlighting this, the Financial Conduct Authority (FCA) last October banned the sale of crypto ETNs to retail investors and followed this up with a statement in January that investors should be prepared to “lose all their money”.
Meanwhile, in Germany, for example, BaFin has enabled bitcoin ETPs to list on the Deutsche Boerse which has led to a number of strategies being launched.
“For the next phase of growth, it is important the space is properly regulated” Kaba-Ferreiro continued. “I can understand the UK’s move to ban crypto to retail but I do think it is misunderstood.
“Cryptocurrencies are not just used for money laundering. They can be used as an inflation hedge, for example, and institutional investors are slowing starting to realise.”